Luxury Property Fillip

By Robert Milburn

There’s yet more evidence the luxury housing market is back. Christie’s International Real Estate says that in 2013 a wave of domestic buyers diluted the influence of wealthy foreigners, who had previously been supporting local markets. And, surprise, deep-pocketed U.S.-based millennials were a big part of that, as they took their first dive into the U.S.’s luxury homes market.

According to Christie’s, these young buyers actually crowded the market for entry level luxury homes, defined as houses over a $1 million, and bidding activity, recently, is stoking property markets ever higher.

Christie’s findings jive in part with Penta’s latest top-20 second-homes survey, which noted that the median sales price of $1 million-plus homes dropped 3.6%, to $1,874,628 last year. As we reported, lots of activity at the low end of the market – signs of a robust market – has the short-term effect of dragging down the median price of houses, in a market previously dominated by a few very expensive houses at the top trading hands. Areas like Austin, for example, saw median prices fall by 4.3%, but local brokers told us that the lower end, just below $1 million, was particularly hot when compared to the trophy purchases of 2012 – and that’s what created the overall decline in median prices.

“With an improving economy and low interest rates generally available, markets witnessed a larger volume of local buyers,” the report notes. Last year’s 29% rise in the stock market lined investor’s pockets. CoreLogic notes that million-dollar home sales and the performance of the S&P 500 are “highly correlated,” with the index serving as a good two-month leading indicator of million-dollar home sales.

In previous years, the high-end of the luxury market was, to a greater extent, supported by wealthy foreigners looking to stash assets abroad, safely away from their more volatile homegrown economies. Christie’s index of the top-ten fastest growing luxury markets globally includes four U.S. cities, but finds that U.S. domestic buyers are now overshadowing foreign demand. In San Francisco, 72% were domestic buyers; in New York, 70%; Los Angeles, 67%. By comparison, the weighted average overall for domestic buyers – in cities including London, Hong Kong, Toronto, and Paris – was 58%.

Only the hot market of Miami, at 50%, was below that domestic-demand benchmark. But even Florida is drawing an ever increasing interest from domestic buyers. EWM Realty International, a Christie’s affiliate, says, on average, it sold a $1 million-plus home every 17 hours last year, calling it “the sixth borough of New York” based on the level of demand. (For a related story, see Penta Daily’s “Why London, New York Draw the Wealthy.”

A Christie’s affiliated broker in San Francisco saw an increase in “move-up buyers,” selling current homes for better ones, and that stoked fiercer competition. But prices for these buyers, Christie’s notes, generally hovered around a nationwide average of $1 million.

What’s interesting is that, newly wealthy millennials are the bulk of the “move-up buyers.” A survey of 107 wealthy households found a sizeable 57% of those well-heeled under 35 year olds are considering the purchase of residential property in the next 12-months. That figure is high, compared to the 21% of those ages 45 or older considering likewise. Not surprisingly, then, young buyers are also “pushing into higher price points,” notes Christie’s.

We tested the firm’s millennial observation with Dolly Lenz, one of the nation’s top real estate brokers. “The number of millennails coming to the market just keeps growing,” she agreed. “They have a bullish outlook on housing and are using real estate as a store of value. Their thinking being that, when they look back 5, 10 years from now, they will think this was cheap.”

Furthermore, this trend is less than a year old, Lenz says, which suggests it still has room to run. Lenz has noticed that in San Francisco and New York City condos are attracting the interest of young folks from financial services, tech and broadly, startups. These young professionals are driving bidding wars for condos under $5 million, realizing that renting is extremely costly and yet often not yet able to afford the priciest digs, she says.

About Penta

Written with Barron’s wit and often contrarian perspective, Penta provides the affluent with advice on how to navigate the world of wealth management, how to make savvy acquisitions ranging from vintage watches to second homes, and how to smartly manage family dynamics.

Richard C. Morais, Penta’s editor, was Forbes magazine’s longest serving foreign correspondent, has won multiple Business Journalist Of The Year Awards, and is the author of two novels: The Hundred-Foot Journey and Buddhaland, Brooklyn. Robert Milburn is Penta’s reporter, both online and for the quarterly magazine. He reviews everything from family office regulations to obscure jazz recordings.